Emerson Electric Co.EMR is slated to report first-quarter fiscal 2017 results before the opening bell on Feb 7.
Last quarter, the company had posted a positive earnings surprise of 7.9%. Also, Emerson has beaten earnings estimates thrice in the trailing four quarters, resulting in an average positive surprise of 4.4%.
Let's see how things are shaping up for this announcement.
Factors to Consider
Emerson's high-profile suite of franchisees and profitable model are expected to benefit the earnings and top-line performance for first-quarter fiscal 2017. The company's restructuring initiatives since 2015 have helped it transform into a more focused, higher-growth and higher-margin industrial company. During the fiscal fourth quarter, all of its segments garnered significant savings from restructuring actions. We believe that the streamlined structure will drive higher margin and better cash flow for the soon-to-be-reported quarter.
Emerson has also been gaining from global infrastructure growth as its core businesses hold dominant positions in markets tied to energy efficiency and infrastructure. Environmental regulations have been driving the need for new products, adding to the company's strength. We believe that positive industry trends in the U.S. construction market will boost the growth of Commercial & Residential Solutions segment for the upcoming quarter.
In addition, Emerson's strategic buyouts are estimated to supplement its financial performance for the fiscal first quarter. During the quarter, the company purchased FMC Technologies, Inc.'s (FTI) Blending & Transfer Systems business. This acquisition is likely to enhance Emerson's product and software portfolio. Other major buyouts made during the quarter include Pentair Valves & Controls and Permasense Limited.
While Pentair Valves & Controls is anticipated to fortify Emerson's foothold in control, isolation, pressure relief valves and actuation business lines; the Permasense buyout will improve the Roxar intrusive corrosion monitoring and non-intrusive sand management systems.
Despite these positives, volatility in the oil and gas market, which has impacted Emerson's business throughout fiscal 2015 as well as 2016, will likely prove to be a drag on the fiscal first quarter's profits. The company suffered from all-pervasive weakness geographically, with negative growth in all regions for the past few quarters. With global oil and gas customers continuing to trim both industrial capital and operational spending, the company's financials are likely to remain under pressure for the quarter to be reported.
Moreover, Emerson has been suffering from sluggish spending in general industrial markets throughout the fiscal year. This has affected the company's order rates across the related segments and pulled down the sales figure. The company's Industrial Automation markets in North America have been extremely challenging and any improvements that Emerson anticipated did not materialize, thereby adding to the company's challenges.
These factors are expected to hurt both the top- and bottom-line performance for the to-be-reported quarter. Moreover, Emerson's results of operations have been hurt by currency fluctuations. Thus, difficult market conditions and currency headwinds are likely to be the biggest headwinds, restricting profitability for the fiscal first quarter.
Our proven model does not conclusively show that Emerson will beat earnings estimates in this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here as you will see below.
Zacks ESP: The Earnings ESP represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate. This leads to an ESP of -2.33% for Emerson as the Most Accurate estimate is pegged 42 cents, while the consensus estimate is pegged higher at 43 cents. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .
Emerson Electric Company Price and EPS Surprise
Zacks Rank: Emerson's Zacks Rank #3, when combined with a negative ESP, makes surprise prediction difficult. Note that we caution against Sell-rated stocks (Zacks Rank #4 or 5) going into an earnings announcement, especially when the company is seeing negative estimate revisions.
Here are some companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:
MRC Global Inc. MRC has an Earnings ESP of +27.3% and a Zacks Rank #2.
Greif, Inc. GEF has an Earnings ESP of +8.0% and a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank stocks here .
Fairmount Santrol Holdings Inc. FMSA has an Earnings ESP of +11.1% and a Zacks Rank #2.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.